How To Implement E-Auctions In Your Organization
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Many organizations still use a paper-based (or an electronic replica of a) traditional Request for Proposal / Request for Quote process. This is absolutely fine for companies that are still developing their procurement teams and workflows. If you’re one of these companies, you should know that you can use a tool like Prokuria to better organize, track, and optimize your procurement process.
If you’re a seasoned Procurement Manager (or a procurement-mature organization), you probably know that electronic RFPs/RFQs are just the first step in a much longer (but rewarding!) journey.
To truly reap the benefits of e-procurement (and e-sourcing in particular), your electronic RFPs/RFQs should be followed by one or more e-auctions. Here are the main reasons why your organization should implement e-auctions:
9 reasons buying organizations should implement e-auctions
You can lower the cost of the products/services you’re buying: electronic auctions use technology to achieve real-time market pricing, so you can achieve up to 20% savings.
You can streamline your purchasing process to save time and resources: once the e-auction process is mature within your organization, you can reduce your sourcing cycle.
You can assess market conditions, even if you’re not changing suppliers
You can improve transparency
You can move to a more objective sourcing approach: when it’s combined with improved transparency, the sourcing process is perceived as more fair-play by suppliers. This also takes the pressure off of you - your suppliers are now openly competing against each other instead of trying to negotiate the best deal through you.
You can improve the specifications of your requirements
You can improve traceability using easier, more reliable audits
You can identify and qualify new suppliers
You use an efficient and paperless method of obtaining quotes.
If you’re still not convinced, here’s how suppliers’ behavior changes after signing a contract awarded via an e-auction:
22% of suppliers are more flexible (when changing orders or quantities last minute, for example);
22% of suppliers offer better quality products/services;
32% of suppliers are more reliable when it comes to deliveries (items are delivered on time);
23% of suppliers are more dependable in keeping promises;
35% of suppliers offer better support.
5 reasons suppliers should participate in e-auctions
Participating in real-time e-auctions enables the suppliers’ sales team to react to their competitors’ pricing
Suppliers can learn more about market pricing, so competitiveness is encouraged
Suppliers can enter new markets as buyers can now work with suppliers from remote locations
Suppliers are rewarded for creating better, clearer specifications before entering an e-auction
Technology enables multiple factors to be considered during an e-auction, so price no longer is the main selection criterion
How to implement e-auctions within your organization
Implementing e-auctions is, first and foremost, a process of organizational change, and it must be treated as such. As with any large-scale organizational change, implementing e-auctions involves a few key success factors, such as:
1. Planning and successfully delivering a pilot e-auction
Ideally, with clear, measurable benefits.
Some organizations have in-house expertise. Others prefer to work with a specialized consultancy company that can help them lift the pilot project off the ground.
A pilot project should involve real users, real suppliers, and a real product to be purchased. Otherwise, you won’t be able to gather data, measure benefits, and put together a sound case for organization-wide implementation.
The planning phase is crucial. Many buyers acknowledge the preparation phase as being the single most important predictor of the success of an e-auction. After all, Abraham Lincoln is credited with saying “Give me six hours to chop down a tree, and I will spend the first four sharpening the ax.”
2. Gathering internal support
This usually requires getting the buy-in of key procurement stakeholders in your organization. It’s often a top-down approach, meaning that a key supporter, with a senior position in the procurement organization, is usually needed to push the e-auction through the internal approval and adoption process.
3. Proper planning
This requires following the steps below:
Appointing someone in charge of each e-auction. Ideally, someone who is well-trained and aware of the common best practices and potential pitfalls of e-auctions.
Carefully considering the items to be purchased (at least for the initial phase). Ideally, these items should be a commodity where:
- you buy significant quantities;
- at least three suppliers are likely to participate in the e-auction;
- price is the main criterion for awarding (anything above 25%-30% in terms of weight in the final decision criteria would also fit under this criterion);
- the value of the contract is substantial. Depending on the specific market, this can vary widely; the idea is to make sure that suppliers are incentivized to participate.
Organizing e-auctions only with previously approved suppliers (who have already been qualified through RFIs/RFPs/RFQs). If new suppliers are identified, they should be first validated/qualified, then invited to the e-auction.
Clearly communicating the methodology both internally, to stakeholders, and externally, to potential suppliers. Suppliers should be crystal clear on the award criteria - i.e., how important the price is, what kind of e-auction is being used, how it works, whether they see their rank or the best price in real-time, etc. For new suppliers, it’s also important to run tests before the real e-auction is conducted. This way, you can determine their understanding of the process and eliminate any potential technical hurdles. Luckily, Prokuria is built so that suppliers can use it in any modern browser, so you can easily run tests beforehand.
Making sure suppliers understand both the process and the specifications. To achieve this, specifications should be as clear as possible. If they haven’t been used previously, they should be validated both internally and externally.
Making sure all participating suppliers operate from a level playing field. Specifically, it’s extremely important that suppliers have access to the same information and have a common understanding of both the process and item(s) being auctioned. This is crucial if you want to obtain the best conditions for your organization.
4. Proper execution
During the event:
Make sure suppliers are logged-in immediately before the event starts.
Make sure technical support is available to suppliers during e-auctions. Although it’s highly unlikely, make sure that bids can be entered on suppliers’ behalf if they meet significant technical difficulties.
Make sure any messages you want to send to suppliers before or during the e-auction are agreed internally in advance and sent at the right time.
5. Proper follow-up
Prokuria doesn’t automatically send a winning message. Once the event ends, suppliers are notified that the e-auction is finished and that the buying organization will be in touch. So make sure you inform participant suppliers of the result as soon as possible.
If there are any other steps the winner should follow (such as post e-auction negotiation), make sure you communicate them in your follow-up. Also, make sure these steps are also outlined in the rules of the e-auction; otherwise, it wouldn’t be fair to suppliers.
Last but not least, you should make sure you ask and give feedback and take on board any lessons learned.
If you’re still relying on a paper-based procurement process, we hope this article has helped you recognize the benefits of digitizing your procurement process. Whenever you feel ready to launch your first e-auction, we will be more than happy to guide you through this process.
Request your FREE Prokuria demo today to find out more about how you can optimize your organization’s procurement.